Davis & Harman LLP

September 9, 2015

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Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

RE: RIN 1210-AB32 – Conflict of Interest Rule

Dear Sir or Madam:

On behalf of a group of firm clients, I am writing today to provide additional comments 

on the Department of Labor’s (“DOL”) proposed new definition of a fiduciary, the proposed new 

prohibited transaction exemptions, and the proposed modifications of existing exemptions 

(together referred to as the “proposal”). As set forth in detail in our prior letter, while we share 

the belief that firms should act in their clients’ best interest, the DOL’s proposal, as currently

drafted, is unworkable.

I plan to submit two comment letters during this second comment period. This letter

focuses exclusively on one process issue: our concern that the decision not to re-propose 

appears to have been made by DOL before the hearing even started and before the second 

comment period began, thus indicating that the decision was made without considering public 

input, contrary to the law. The second letter will address substantive issues that were raised at 

the hearing or arose after the close of the first comment period on July 21, 2015.

DOL should re-propose. We urge the DOL to re-propose the regulation. The current 

proposal would have the very serious adverse effects that were described in our original 

comment letter, such as widely depriving small businesses and small accounts of access to 

investment and distribution assistance and reducing retirement savings by as much as $80 billion 

annually. 

Reading the comment letters and listening to the hearing only further underscored our 

view that the DOL needs to re-propose. The range of important issues raised in the comment

letters and at the hearing was staggering, far greater than I can recall with respect to any 

regulatory project since I began working in this area over 30 years ago. And even more 

concerning, DOL needs to address substantially all of the issues raised to make the proposal 

workable. For example, there is a long list of reasons why no financial firm that I have spoken to 

is planning to use the “best interest contract exemption” (“BICE”). If most of those reasons are 

addressed but some are not, financial firms will still not be able to use the BICE. So there is 

enormous pressure to get this regulation right, not just mostly right. 

In short, there are a staggering number of issues, and it is critical that they are resolved 

correctly. In this context, the chances that the next version of the proposal gets the issues exactly

right seem very low. The emphasis should be on getting this right, not on getting this done on a 

particular schedule. 
Davis & Harman LLP

September 9, 2015

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Concern that the decision not to re-propose was apparently made before the DOL 

hearing had even started. In light of this situation, we were very concerned about the letter that 

Secretary Perez sent to Congresswoman Ann Wagner dated August 7, 2015. The August 7th

letter was in response to a bipartisan letter sent to Secretary Perez dated July 29, 2015. The 

bipartisan letter made one core request – for DOL to re-propose the regulation due to the 

problems with the proposal, the extensive comments, and the importance of the issues being 

addressed. In response, Secretary Perez pointed to the work that has been done on the proposal 

and the importance of the proposal and concluded: “For these reasons, we will move forward 

towards issuing a Final Rule that balances the input we received.”

In context, there seemed to be very little doubt that the Secretary was saying no to the 

request that DOL re-propose. The bipartisan letter had one request: please re-propose. The 

response said that DOL will move forward with a final rule. 

As discussed further below, under the Administrative Procedure Act, any decision 

regarding whether to re-propose is required by law to be made based on the record and the public 

input received and the rule changes needed to reflect that input. The Secretary’s letter was dated 

August 7th, which was (1) before the hearing started, (2) before the second comment period 

started, and (3) before the DOL could possibly have read and analyzed the thousands of pages of

comment letters from the first comment period.

Under the law, when is a re-proposal required? In determining whether finalization of 

a rule is appropriate, the long-standing test that courts have applied is whether the final rule is a 

“logical outgrowth” of the proposed rule. This is sometimes discussed in terms of whether the 

proposed rule “sufficiently foreshadowed” the final rule. The idea is that if the final rule includes 

materially different rules that interested parties did not have a chance to comment on, then

finalization of the rule is not appropriate; rather, if the agency wants to move forward with the 

rule, the agency must re-propose. Set forth in the Appendix to this letter are examples of cases on 

this issue.

Analysis. The DOL has stated publicly that the next version of the rule will be 

“materially” different from the proposal. If it is indeed materially different, then it is possible 

that under the case law, it should be re-proposed. It is also possible that under the case law that 

the next version is a “logical outgrowth” of the proposal, despite the material changes. But until 

all the comments are received and considered, how can DOL possibly figure out the extent of the 

changes that will be made and thus whether the next version of the rule is a logical outgrowth of 

the proposal?

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Even a DOL official at the hearing acknowledged that it was too early to decide whether 

DOL needs to re-propose. But this was five days after Secretary Perez sent a letter stating that 

the DOL would move towards a final rule; in other words, the decision had already been made.

 

1 As noted, we strongly believe that the rule must be re-proposed. If the proposal is not 

very materially modified, the rule will be unworkable. If the rule is modified as materially as it 

needs to be, re-proposal is clearly required under the standard described above. 
Davis & Harman LLP

September 9, 2015

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Respect for the openness of the process. We have great respect for the open manner in 

which DOL has sought input since the release of the proposal in April of this year. The DOL is 

to be commended on its dedication to meeting with and listening to interested parties. And 

Secretary Perez is to be specifically applauded for setting the tone for this open process in many

ways, including meeting with many stakeholders himself on numerous occasions. But if 

decisions are being made by DOL without regard to the input being provided, that is not 

appropriate, nor is it consistent with the law. 

In short, we urge the DOL to re-propose and not adhere to a decision made before 

hearing and the second comment period. Thank you for your consideration of the views 

expressed in this letter. 

Sincerely,

Kent A. Mason
Davis & Harman LLP

September 9, 2015

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APPENDIX

CASE LAW REGARDING WHEN FINALIZATION OF A RULE IS NOT 

APPROPRIATE AND RE-PROPOSAL IS REQUIRED IF THE AGENCY WANTS TO 

MOVE FORWARD WITH THE RULE

 “While ‘a final rule need not be identical to the original proposed rule,’ when the final 

rule ‘deviates too sharply from the proposal, affected parties will be deprived of notice 

and an opportunity to respond to the proposal.’ ... The test is whether the final rule is a 

‘logical outgrowth’ of the proposed rule. If ‘a new round of notice and comment would 

provide the first opportunity for interested parties to offer comments that could persuade 

the agency to modify its rule,’ then the final rule is not a ‘logical outgrowth.’” Doe v. 

Rumsfeld, 341 F. Supp. 2d 1, 14 (D.D.C. 2004) (citations omitted).

 “The logical-outgrowth doctrine typically applies where an agency publishes a notice of 

proposed rulemaking (‘NPRM’), receives comments, and issues a final rule whose 

contours differ substantially from those described in the NPRM...The ‘key focus’ of the 

logical-outgrowth inquiry remains whether the purposes of notice and comment have 

been served.” AFL-CIO v. Chao, 496 F. Supp. 2d 76, 86 (D.D.C. 2007).

 “The ‘logical outgrowth’ test is satisfied if interested parties ‘should have anticipated’ 

the agency's final course in light of the initial notice.’ ... As the Supreme Court recently 

explained, the object of the logical outgrowth test ‘is one of fair notice.’ ... It is certainly 

true that a notice can be ‘too general to be adequate.’ ... ‘Agency notice must describe 

the range of alternatives being considered with reasonable specificity[;][o]therwise, 

interested parties will not know what to comment on.’” Owner-Operator Indep. Drivers 

Ass'n, Inc. v. Fed. Motor Carrier Safety Admin., 494 F.3d 188, 209 (D.C. Cir. 2007) 

(citations omitted) (emphasis added).

 “‘A rule is deemed a logical outgrowth if interested parties ‘should have anticipated’ that 

the change was possible, and thus reasonably should have filed their comments on the 

subject during the notice-and-comment period.’ ... Our Circuit has stated that ‘[t]his 

means that a final rule will be deemed the logical outgrowth of the proposed rule if a 

new round of notice and comment would not provide commentators with ‘their first 

occasion to offer new and different criticisms which the agency might find convincing.’’ 

... If a ‘final rule deviates too sharply from the proposal, affected parties will be deprived 

of notice and an opportunity to respond to the proposal.’ ... A final rule is not necessarily 

invalid for lack of notice, however, simply because the position it adopts differs 

somewhat from the position in the proposed rule. ... [A] final rule is not the logical 

outgrowth of the proposed rule if the agency's final rule is the opposite of the proposed 

rule. ... ‘[i]f the APA's notice requirements mean anything, they require that a reasonable 

commenter must be able to trust an agency's representations about which particular

aspects of its proposal are open for consideration.’” Nat'l Ass'n of Home Builders v. U.S. 

Army Corps of Engineers, 453 F. Supp. 2d 116, 124-25 (D.D.C. 2006) (citations 

omitted).
Davis & Harman LLP

September 9, 2015

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 “[A]gencies may not ‘pull a surprise switcheroo on regulated entities.’” Allina Health 

Servs. v. Sebelius, 746 F.3d 1102, 1108 (D.C. Cir. 2014).

 “Courts have not allowed for agency's [sic] to write into the proposed rule language that 

the agency can later point in asserting that the rule provided adequate notice, otherwise 

known as ‘catch-all notice.’ ... Catch-all notice is problematic because it allows an 

agency to ‘propose a rule and state that it might change that rule without alerting any of 

the affected parties to the scope of the contemplated change, or its potential impact and 

rationale, or any other alternatives under consideration.’” Pub. Citizen, Inc. v. Mineta, 

427 F. Supp. 2d 7, 15 (D.D.C. 2006) (citations omitted).